The huge bulk of Mises Wirereaders are already acquainted with the Austrian business cycle theory. For those who are not, it is an Austrian perspective on what triggers the unexpected general cluster of business mistakes that leads to a boom-bust cycle, with the busts being the recessions or depressions that we as a society so fear. Murray Rothbard explains this process in his America’s Great Anxiety:
In amount, business people were misguided by bank credit inflation to invest too much in higher-order capital items, which might just be prosperously sustained through lower time choices and greater savings and financial investments; as quickly as the inflation penetrates to the mass of the people, the old consumption-investment proportion is restored, and company investments in the greater orders are seen to have actually been wasteful. Business owners were resulted in this mistake by the credit growth and its tampering with the free-market rate of interest.
In other words, since interest rates are various from what genuine market conditions would dictate, people invest operating under false assumptions. Ultimately the elastic band holding together reality and these false assumptions needs to snap and in so doing leads to an anxiety as this cluster of bad investments collapse upon themselves.
It is this logic that led Mises Institute senior fellow Mark Thornton to advance the high-rise building curse. He discusses in a simple one-minute overview of the high-rise building curse that this curse is” [t] hat eerie connection between the building of the world’s tallest structures and economic crises.” He goes on to discuss that” [t] he reason for this coincidence is that banks and reserve banks are releasing too much credit and setting rate of interest artificially too low, triggering speculative credit booms.” This is straight an outcome of business cycle theory we profess as Austrians. Deceptive rates lead to overinvestment in long-term tasks– what could possibly be a better representation of such a thing than the tallest buildings ever constructed?– and quickly after their completion we see time and time again that “the old-consumption-investment percentage is reestablished.”
In numerous speeches, Dr. Thornton and his fellow Mises Institute financial expert Dr. Lucas Engelhardt have claimed that it is not likely that this will stay a perfect sign permanently. As culture and technology modifications, one day this pattern might stop to anticipate these investment relationships. However, the logic behind this argument will always hold. We are possibly seeing a shift now. The brand-new indication might appear in a more digital sense. Our biggest high-rise buildings exist no longer physically, but in a world of ones and absolutely nos: the most cutting-edge technology tasks may serve as a prospective record-setting skyscraper in today’s age.
Regrettably, it’s a lot harder to measure just what is a brand-new game-changing innovation than it is to measure the height of a building. Nevertheless, ex post, there is an apparent moment that teaches us the same lesson in 2 forms: the 2008 economic crisis. Dr. Thornton’s example of the skyscraper curse in this case was the Burj Dubai tower, which was completed in 2007, prior to the real estate bubble burst. The high-rise building curse obviously held true with this structure; however, this is not the only thing to have taken place in 2007. On June 29, 2007, the iPhone was launched. The same logic might effectively hold true of such a job. The iPhone was among the most enthusiastic and game-changing advancements in recent history, and it is a terrific symbol of the boom portion of the cycle simply as high-rise buildings are. Its timing is simply as perfect as the Burj Dubai tower’s remained in relation to the skyscraper curse.
As we continue forward into this brand-new digital future, it can’t injure to be vigilant for these brand-new digital metaphorical high-rise buildings. Recently we’ve seen tech giant Elon Musk skyrocket to unprecedented levels of wealth, Facebook is undergoing an entire new rebrand to become “Meta,” heck, as I’m composing this I’m getting ads for formerly inconceivable innovations. One needs to ask, Are these signs people going through the peak of a boom cycle and dealing with a new version of the skyscraper curse?